Article by Neil Greenhill - 18th July 2012

HSBC Fails To Implement Money Laundering Checks

A scathing US Senate report has described how HSBC failed to implement proper money laundering checks while moving suspicious funds from Mexico, Iran, and Saudi Arabia as well as other high risk countries into its US division.

The scale of this scandal is likely to be much bigger than the Barclays/Libor story currently being investigated by the Treasury Select Committee. Some analysts suggest the potential fine could be up to $1 billion.

The Senate report concluded, "large sums of drug money from Mexico had almost certainly been laundered through the bank.” $7 Billion was moved from Mexico into the US between 2007 and 2008 alone. HSBC had wrongly designated Mexico as a "low risk" country despite the on-going drugs war and the presence of large drug cartels.

HSBC provided US cash and banking services to banks in Saudi Arabia despite links to terrorist funding. A further breach saw HSBC circumvent the laws imposing sanctions on Iran. Two affiliates of HSBC managed to process 25,000 separate transactions totalling nearly $20 billion while hiding the links to Iran.

It seems that HSBC - Europe's largest bank - ignored the warning signs that money laundering checks were not properly in place and again the culture in the big banks has been questioned. The senator in charge of the subcommittee, Carl Levin, has spoken of a "polluted" system in place at HSBC.

What makes this story so hard to believe is just how stringent the checks applied by HSBC are on common UK transactions involving much smaller amounts of cash. Money laundering checks are required by law in the UK and are to ensure that illicit gains don't get into the banking system, they may include requiring you to produce your passport, driving licence, recent bank statements together with enquiries made through the credit reference agencies.

UK law requires all banks to make such checks before they are allowed to take money from you. The same law applies to anyone who takes money, including building societies, solicitors and accountants. If you have applied for a mortgage, made a house purchase with cash or recently opened a bank account or similar facility it is likely you have had to undergo a money laundering check.

You may see these on credit files and if you have gone to buy a house with a cash deposit or a cash gift it is likely you will have been cross-examined by your bank or your solicitor, and also will have received a bill from your solicitors for the work carried out.

Given that these checks are in place on everyday accounts here in the UK it is hard to believe HSBC did not have a proper system of checks when dealing with much larger sums of money in its US division.

Top executives have appeared before the Senate and HSBC has issued a statement saying, "We will apologise, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong."

It seems that HSBC will now be consigned to the long list of banks whose business culture has been called into question in recent months.

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